Event Study Analysis Research Articles

Agribusiness value impacts from highly pathogenic avian influenza

PurposeThe purpose of this paper is to determine the impact of 2014–2015 highly pathogenic avian influenza (HPAI), the largest animal health emergency in US history to date, on agribusinesses’ market values.Design/methodology/approachUsing the 2014–2015 HPAI outbreaks in US commercial poultry, event study analysis of meat processing and marketing companies is conducted to estimate the effects HPAI had on firm value and how these effects differed across meat marketing firms over distinct disease event dates. The analyses include an overall aggregate event study, chronological outbreak studies, and an analysis that separated firms specifically marketing poultry products from those marketing all other types of meat.FindingsBy tracing abnormal stock returns through the event dates, the results show heterogeneity of investors responses based on the nature of the event (i.e. backyard vs commercial flocks affected), timing of the event over the course of the entire HPAI outbreak, and if a firm marketed poultry products. Overall, negative abnormal returns, ranging from 2 to 4 percent of publicly traded meat processors’ equities, are predominant post-disease event. These negative effects are slightly higher, above 5 percent, for firms marketing poultry products.Originality/valueThis study is the first to analyze the effects of an HPAI outbreak on the market value of US agribusiness firms.

Business Development Companies: Private Equity for Individual Investors

Using the universe of Business Development Companies (BDCs), a unique publicly traded segment of U.S. Private Equity (PE), for the period 1998-2017 we provide the first in depth examination of their performance and risk adjusted characteristics and compare our results to contrasting evidence derived from recently developed time series proxies for unlisted PE returns. BDCs exhibit zero alpha, beta of one and significant exposure to SMB, HML, and CMA factors of 0.5, 0.7, and -0.3, respectively. BDC performance and market beta are sensitive to fund size and leverage. We provide evidence that BDC returns capture both the asset selection and PE ownership elements of the unlisted PE investment strategy. Finally, an event study analysis shows that NAV disclosures become informative only after the adoption of the Statement of Financial Accounting Standards 157 (SFAS 157). We posit that BDCs provide a readily available market-based PE benchmark for use by regulators, market participants, and academics.

Currency returns during democratic transition: evidence from Tunisia

PurposeThe purpose of this paper is to investigate the question whether democratic transition elections influence currency returns. Also, the paper examines the behavior of the currency market around these elections in Tunisia.Design/methodology/approachEmpirical data are collected from the International Monetary Fund, the Central Bank of Tunisia and the Tunisian stock market websites. The paper employs event study analysis using a market model and investigates abnormal currency returns around the four election events that occurred during the period of democratic transition in Tunisia (2011–2015). A robustness test is also conducted to control for monetary policy effects.FindingsThe results indicate that democratic transition does impact currency returns. The authors did not find any significant effect on the events dates (t0). However, event windows around the elections days reacted significantly to the events. The authors notice a significant decrease in cumulative abnormal returns (CARs) at event periods leading up to the elections. Post-event windows perceived negative CARs in the first and second election, and positive CARs in the last two elections. The authors also find that the change in the victors of the elections does not cause major differences to CARs. Further, the authors do not find significant results when controlling for inflation and interest rate.Originality/valueThere is no evidence yet on how democratic transition elections can affect currency returns. Given that currency is a leading indicator of the performance of the financial sector, this paper should provide policymakers with new evidence on the response of currency returns to democratic transition.

Enforcement Actions, Market Movement and Depositors\u2019 Reaction: Evidence from the US Banking System

We examine market movement and depositors’ reaction following the announcement of enforcement actions (EAs) on US banks over the period 2004 to 2015. Using an extensive dataset of manually collected EAs, employing event study and multivariate analyses, we investigate the impact of EAs on key bank stakeholders, i.e. shareholders and depositors. Our findings suggest that equity market and depositors are able to discriminate EAs based on their severity. Market reacts negatively following severe EAs (cease and desist) while weak reaction is noted for other EA types (civil money penalty and formal agreements). Demand depositors exhibit some level of depositor disciplining mechanism following cease and desist announcements, while core depositors seem to reward sanctioned banks for a higher return. A positive effect is found following formal agreement announcements that seem to be perceived as a corrective mechanism. We validate these findings across the sanctioned (treatment) and comparable non-sanctioned (control) banks, using propensity score matching methodology. These findings have important policy implications and expand the existing knowledge on the consequences of banking supervision to guide banks’ behaviour, drive policy interventions and contribute to enhance supervisory effectiveness.

The influence of external political events on social networks: the case of the Brexit Twitter Network

The social media debate preceding the 2016 Brexit referendum represents a yet another instance of the growing role of social networking sites, also known as social media, in steering the dynamics of the socio-political process nowadays. Considering the scale of the phenomenon as well as the variety of concerns it raises vis-a-vis transparency, equality, representation, and legitimacy of the political process, it is imperative to query the mechanisms behind the relationship that unfolds between social media, their users and the political process. To do this, this paper employs event study analysis and recent advances in data mining and data analysis to examine how certain non-virtual political events constituent of the Brexit debate had been played out in the social media realm and influenced the social media users’ stance toward the very question of Brexit. This composite methodological approach that this study adopts allows to measure how non-virtual political events influenced the network of users who discussed the withdrawal of the UK from the EU in Twitter in the weeks prior to the Brexit referendum. The outcomes of this study suggest that social networking sites play a pivotal role not only on how information is diffused over the network but also on user’s message creation, dissemination behaviour and the shape of the social network itself.

The vulnerability of tourism firms’ stocks to the terrorist incidents

ABSTRACTThis study investigated the effects of terrorist attacks on the stock performance of tourism, travel, and leisure industries. The major tourist countries have been selected for this purpose. The novelty of this research is that not only it focuses on the relationship between terrorism and tourism stock performance and volatility but also uses an event study to examine this relationship. The results of this study revealed the significant effects of terrorist attacks on tourism firms’ performance and stock volatility in France, Spain, Thailand, Turkey, the United Kingdom, and the United States, while no significant effects were obtained for China and Germany. The overall panel event study analysis as well as the event study for individual countries illustrated the considerable adverse effects of terrorist attacks on firms’ performance in tourism, travel, and leisure industries.

Market reactions to sport sponsorship announcements: Comparison between sponsors and their rivals

In this study, the authors investigate the impact of sport sponsorship announcements on the stock prices of sponsors and their rivals in Japan. The event study analyses show that while market reactions for Japanese sponsors are significantly positive, those for rivals are significantly negative. Thus, in Japan, sponsorships might help sponsors build a competitive advantage over their rivals. During 2010–2014, market reactions for sponsors are significantly more negative but less so when the sponsored party is Japanese.

Exit strategies, capital flight and speculative attacks: Europe's version of the trilemma

In the winter 2011/12, a wave of internal capital flight prompted the ECB to abandon its exit strategy and announce an unprecedented monetary expansion. We analyze this episode in several dimensions: (i) we provide an event-study analysis, covering key variables from national central banks' balance sheets, (ii) we rationalize the empirical patterns in a formal discussion of the constraints in a monetary union and (iii) we analyze different indicators of redenomination risk in the euro area. Finally, we argue that the euro area entails an inherent policy trilemma that makes it prone to speculative attacks.

The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

This paper uses event study analysis to estimate the impact of the United States Federal Reserve Bank’s (Fed) quantitative easing (QE) announcements on the mortgage market during the zero lower bound (ZLB) period. A total of 35 QE announcements are identified and their effects are evaluated. The best-fitting integrated generalized autoregressive conditional heteroskedasticity (IGARCH) model with skewed t distribution is used to measure the QE announcement effects on daily changes of the 30-year mortgage rate, the 30-year Treasury rate and the spread between them. Announcements suggesting the start of a new round of QE reduced the mortgage rate tremendously, while the effects of further news diminished. Announcements of an increase in mortgage-backed security purchases decreased the mortgage rate more than the Treasury rate and reduced the credit risk of holding mortgage securities over Treasury securities. The delayed effects of QE announcements on the mortgage rate were less than short-run effects but persistent. We also find that the previous literature overestimates QE effects on interest rates in general.

Does CEO Gender Matter at Financial Institutions? An Event-Study Analysis of Credit Union Data

Previous studies of risk management and overconfidence at firms and financial institutions suggest that female CEOs engage in more conservative risk management practices relative to male CEOs, and less aggressive growth and acquisition behavior. However, these studies are limited by a lack of variation in CEO gender, as only 5% of commercial bank CEOs and 6% of Fortune 500 company CEOs are female. We examine gender differences in risk management and overconfidence in the distinct context of nonprofit financial cooperatives (“credit unions”), in which a majority (52%) of CEOs are female. Do observed gender differences in risk preferences and overconfidence hold under such circumstances? We utilize a unique dataset with 23 years of credit union quarterly data and CEO gender to employ two-way quarter and institution fixed effects and event study frameworks to focus on variation within credit unions that experience a CEO transition with a corresponding change in the gender of the CEO. The event study methodology allows us to thoroughly explore pre-CEO transition trends and parallel trends to account for potential selection bias. While gender differences in indicators of risk management are in the expected direction, few are statistically significant, and none are economically meaningful. The results suggest that practical differences in observable risk management are negligible among credit union CEOs. However, we do find statistically significant and large gender differences in credit union growth: male-led credit unions grow 2.9% larger in terms of memberships and 5.9% larger in terms of loans. They also expand their fields of membership to have 8.2% more potential members, execute 2.8% more merger-acquisitions, and increase their marketing expense by 7.5% relative to female-led credit unions. Nonetheless, there are no significant gender differences in credit union earnings. We argue that the results are consistent with gender differences in overconfidence but not risk aversion. The findings highlight the importance of context when evaluating gender differences in risk management and performance.

Strategic Timing in Closed-End Fund Portfolio Holdings Disclosure

Using a sample of equity closed-end funds, we document significant portfolio holdings disclosure valuation effects and strategic disclosure timing by portfolio managers. An event study analysis reveals statistically significant positive (negative) abnormal returns associated with early (late) disclosure. We find that the returns of a long-short arbitrage strategy portfolio become statistically significant exactly when the implementation of such a strategy is facilitated by the timely disclosure of portfolio holdings. Our findings support the argument that managers of funds trading at high discounts are more likely to disclose earlier in order to reduce discounts and protect themselves from activist investor attacks. This is despite the documented strong motives for late disclosure stemming from copycatting and front running threats shared with open-end fund managers.

Market reaction to the European antitrust investigations in the payment card industry

This paper aims to analyse the stock price reaction of European banks involved in antitrust authority interventions regarding the payment card business. The main objective is to assess whether market discipline is effective and able to complement regulation (Berger et al., 2000) despite the opacity of the business (Morgan, 2002). To this end, we collect all interventions made by both domestic antitrust authorities and by the European Commission to investigate and/or sanction anticompetitive behaviour in the payment card sector over the period 2004-2015. This results in a sample of 24 events, involving 135 listed banks operating in the EU-27 area. We run an event study analysis based on a traditional market model in order to estimate cumulated abnormal returns (CARs), considering both the date when the formal investigation is open and the date when the outcome of the procedure is communicated to the market. Our findings provide weak evidence in favour of the effectiveness of market discipline, with a significant (negative) market reaction only for investigations involving a small number of well-identified banking institutions, while procedures involving large banking associations or payment networks do not generate any relevant reaction.

Semesters or Quarters? The Effect of the Academic Calendar on Postsecondary Student Outcomes

We examine the impact of US colleges and universities switching from an academic quarter calendar to a semester calendar on student outcomes. Using panel data on the near universe of four-year nonprofit institutions and leveraging quasi-experimental variation in calendars across institutions and years, we show that switching from quarters to semesters negatively impacts on-time graduation rates. Event study analyses show that these negative effects persist well beyond the transition. Using detailed administrative transcript data from one large state system, we replicate this analysis at the student-level and investigate several possible mechanisms. We find shifting to a semester: (1) lowers first-year grades; (2) decreases the probability of enrolling in a full course load; and (3) delays the timing of major choice. By linking transcript data with the Unemployment Insurance system, we find minimal evidence that a semester calendar leads to increases in summer internship-type employment.

The Impact of Supplier Sustainability Risk on Shareholder Value

Business scandals like sweatshop labor have received growing attention in the field of supply management. Yet little is known about how detrimental such scandals are to buying firms. This study aims to fill this gap by examining the magnitude of the consequences of what are termed as supplier sustainability risks (SSRs). To this end, we conduct an event study analysis followed by regression modeling based on a sample of 196 U.S. publicly traded firms’ SSRs. The results reveal that SSRs are associated with a 1.00 percent reduction in shareholder wealth. The market reacts negatively but not differently to the two types of SSR: process‐related risks and product‐related risks. Finally, a firm's moral capital does play a mitigating role for SSRs and process‐related risks; however, it does not provide insurance‐like protection for product‐related risks.

Advance notice labor conflicts and firm value—An event study analysis on Israeli companies

The Israeli law has a special requirement—unions must announce a labor-conflict at least 15 days before a potential strike. This raises the question whether (and how) an advance notice affects the firm value, as it allows employees and employers to negotiate and reach an agreement prior to an actual strike. Using event study analysis, we find in large firms and in companies with relatively high stock liquidity significant negative effect only after the announcement. Smaller firms with relatively illiquid stock exhibit significant negative effect prior to the announcement day, and their post event-day effect is statistically insignificant.

Early evidence from South Carolina\u2019s Medicare-Medicaid dual-eligible financial alignment initiative: an observational study to understand who enrolled, and whether the program improved health?

BackgroundIndividuals dually eligible for Medicare and Medicaid coverage are among the sickest patients in the United States. Prior literature has identified a lack of care coordination or even conflicts of interest between the two programs as barriers to more efficient care and better health outcomes among dual-eligibles. The purpose of this study is to assess characteristics of dual eligibles who participated in South Carolina’s 2015 voluntary Medicare-Medicaid financial alignment demonstration project, and to evaluate whether their participation led to better observable health outcomes.MethodsWe obtained all inpatient and emergency department visits, and all Medicaid outpatient visits of individuals identified as Medicare-Medicaid dual eligibles from 2011 to 2016 from South Carolina’s Revenue and Fiscal Affairs Office. We employed logistic regressions to assess the characteristics of participants and quitters in the Medicare-Medicaid financial alignment demonstration project. To evaluate the impact of participation on health outcomes, we used an event study analysis that examines trends in outcomes over time, with participation in the demonstration project as the triggering event, and a difference-in-differences methodology that compares changes in health outcomes before and after participation in the demonstration project compared with a control group.ResultsUrban patients, female patients, and patients with heart problems, social and mental disorders, and importantly, patients with multiple comorbidities (as indicated by a higher Charlson comorbidity index) are less likely to join South Carolina’s demonstration project. Once having joined, female patients and patients with a higher Charlson index appear to be more likely to quit. Those who joined did not appear to enjoy better health outcomes in the short time frame.ConclusionsPolicy makers should explore and address reasons why dual eligibles with complex health problems hesitate to join the alignment project, and continue to monitor whether such a program improves health given that a prolonged period of exposure to the program may be required to achieve better health among the nation’s most vulnerable patients.

An Event Study Analysis of Political Events, Disasters, and Accidents for Chinese Tourists to Taiwan

The number of Chinese tourists visiting Taiwan has been closely related to the political relationship across the Taiwan Strait. The occurrence of political events and disasters or accidents have had, and will continue to have, a huge impact on the Taiwan tourism market. To date, there has been relatively little empirical research conducted on this issue. Tourists are characterized as being involved in one of three types of tourism: group tourism (group-type), individual tourism (individual-type), and medical cosmetology (medical-type). We use the fundamental equation in tourism finance to examine the correlation that exists between the rate of change in the number of tourists and the rate of return on tourism. Second, we use the event study method to observe whether the numbers of tourists have changed abnormally before and after the occurrence of major events on both sides of the Strait. Three different types of conditional variance models, namely, the Generalized Autoregressive Conditional Heteroscedasticity, GARCH (1,1), Glosten, Jagannathan and Runkle, GJR (1,1) and Exponential GARCH, EGARCH (1,1), are used to estimate the abnormal rate of change in the number of tourists. The empirical results concerning the major events affecting the changes in the numbers of tourists from China to Taiwan are economically significant, and confirm the types of tourists that are most likely to be affected by such major events.

Risk aversion decomposition and the impact of monetary policy surprises on aggregate tail risk aversion

PurposeThe purpose of this paper is to present theoretical and empirical support that the fear component associated with rare events has an impact on risk premium and market returns.Design/methodology/approachExtension of jump-diffusion model to extract the fear component from representative agent risk aversion, Standard VAR and impulse response function analysis, Event study analysis.FindingsThe model implicates that investor fear of tail jumps in the financial market impacts equity risk premium. The empirical findings show both positive stock and monetary policy shocks decrease investor’s fear. It can be attributed to that a bullish stock market and an increase in interest rate reflects expanding economy, and it leads to a decrease in fear. Moreover, a surprise decline in the expected short-term rate has a mixed impact on tail risk aversion. A plausible explanation is that investors believe a surprise drop in an expected short-term rate reflects a fast deteriorating economic outlook during unconventional monetary policy period.Originality/valueThis paper provides theoretical framework to decompose risk aversion into two separate components: one component associated with daily volatility, and the fear component associated with rare events. The study uses risk premiums decomposed from Chicago Board Options Exchange volatility index as proxies for the two components of risk aversion, and then utilizes standard value at risk and event study analysis to show the fear component plays a role in risk premium and market return.

Extractive Institutions? Investor Returns to Indian Railway Companies in the Age of High Imperialism

Did colonial policies in India deliver excessive returns to British investors? We answer this question using annual data on Indian securities trading on the London Stock Exchange. We present new series on market capitalization, capital gains, dividend yields, and total returns of railway securities from 1879 to 1929. The average annual total return on the largest and most important Indian railway securities was 3.7%. These returns were not excessive by any financial standard. Indeed, they were lower than the return on railway securities for other regions like North America, Latin America, and Asia. We also undertake an event study analysis to assess if Indian railways significantly benefited British investors. When the Government of India purchased large positions in the private railway companies between 1880 and 1910, there were opportunities for profit-making. However, we find no evidence of abnormal investor returns in the years leading to the purchase of railway companies. Broadly our findings call into question the extractive nature of colonial railway policy.

The Dark Side of Star Marketing

This research examines how the announcement of a celebrity endorsement contract with a brand can influence consumers’ judgment of its future growth in a market. Using both behavioral experiments and an event study analysis, we find that when the brand is perceived to be technology-focused (versus marketing-focused), the information about the celebrity contract can lead consumers to view the brand’s future as less promising. Furthermore, we identify consumers’ inferences about the quality of the brand as a psychological factor underlying this effect. This paper provides evidence that star-marketing can sometimes signal management’s misjudgment about resource allocation for a brand, which unduly invests in celebrity marketing at the expense of quality improvement for the product.